Every month, you pay your mortgage. But do you know what you’re actually paying for? It’s not just your mortgage loan!
Swipe to learn more about the different components that make up your monthly mortgage payment.
Your loan payment is a combination of principal (the amount of money you borrowed from the lender) and interest (the money your lender charges for the principal).
But in addition to those two items, your monthly mortgage payment ALSO pays your homeowner’s insurance, private mortgage insurance (if your down payment was under 20%), and your property taxes.
Your lender will be able to give you a breakdown of your monthly payment so you can see just where your money is going each month. Remember, you might be able to change the cost of some of those items–particularly your homeowners insurance!
Principal
The principal is the actual amount of the mortgage loan. When you first begin making mortgage payments the percentage of the payment going towards the principal is lower and increases over time.
Interest
Interest is what the lender charges for lending you the money. At the beginning a larger percentage of your payments will go towards interest. But over time as you pay down the principal you will owe less interest. At the end, you will owe very little interest and most of the payment will go towards the principal.
Insurance
ge Insurance (if applicable) – If your down payment is less than 20% you will be required to pay mortgage insurance. Mortgage insurance protects the lender in the event you fall behind on payments.
Tax
Property tax that is. Property taxes are assessed by government agencies and used to fund public services. Tax rates are calculated by your local government and are reevaluated every 1-5 years (so it can fluctuate). The lender collects the tax payment & holds it in escrow until the taxes have to be paid.
